Fred is a well known believer in "open" projects and has quite literally put an awful lot of money into a variety of startups that espouse a very open philosophy. So it's not surprising that he disagrees that it's not possible to make money and be open. But his view is nuanced:

I do not think open conflicts with making money and further I think there are ways to make more money by being open rather than closed, but it takes imagination and a well designed relationship between your product/service and the rest of the Internet.

I also think it is better to open up slowly, cautiously, and carefully rather than start out wide open and then close up every time an existential threat appears on the horizon.

He points to Etsy as an example of a company that has become more open over time, and to Twitter as one that started out very open and has had to close up over time (Fred is an early investor in both companies). At the end of his post, Fred tosses in an aside to the "O'Reilly Doctrine" referring to one of Tim O'Reilly's (many) great maxims:

Create more value than you capture

I've actually been thinking about this quite a bit lately, and I think that when you recognize how growing markets tend to work, and the way openness can influence markets, that the O'Reilly Doctrine explains -- in a backdoor way -- why it appears that open platforms are antithetical to making money, when the truth is often quite the opposite. I've been trying to explain this (unsuccessfully) for years, but hopefully I can express it more clearly here.

Economic growth comes from the sharing of ideas (once you get past growth through scarce resource discovery). This is the key realization of a number of economists over the past few decades, most notably, Paul Romer. As we've noted in the past, knowlege is a universal resource that does not diminish and can expand -- unlike scarce resources that are limited. Knowledge and information only expand, and in doing so they often make all of those other scarce resources more valuable. Knowledge and information makes things more efficient and makes things better, thereby increasing economic value and expanding the overall pie. Or, as Romer has said:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.

Possibilities do not add up. They multiply. But take that a step further. One of the ways to increase this kind of growth and to increase this kind of knowledge sharing is to be open and to allow everyone (or larger groups of people) to contribute. And that requires openness. But there's a related caveat to that. When you're open like that and allowing others to contribute, you're also "leaking" some of the benefits as well -- often a very large amount. In economic terms, these are often referred to as positive externalities or spillovers. Basically things that one party does that benefit others widely. I think both terms are slightly misleading in that when most people think about externalities or spillovers, they assume a small bit off the top.

But when it comes to knowledge and information in open systems, it's not that way at all. The vast majority of the benefit is actually going back to the public, because you don't have the walls and the gates to contain it and capture all that value directly. But that doesn't mean there isn't a tremendous amount of value that can be captured by those responsible for creating the open systems. It's just that on a percentage basis, it seems much less. They create these massive and expansive fields of value out of nothing, and only capture a small piece of it -- leaving the rest of those benefits to be enjoyed by the public. But these fields are so big that the businesses themselves can be huge and can make a ton of money (think: Google, Twitter, Craigslist, Kickstarter, etc...).

Yet, in the old, closed way of doing business, the mentality is very much about how much of the value did you capture. They're not concerned about expanding the overall market and just keeping a small part. They're focused on capturing a larger and larger piece of the existing market. It's why, for example, with the entertainment industry, we see them so focused on taking bigger and bigger licensing deals, and making it so businesses like Netflix and Pandora and Hulu have trouble building long term viable businesses -- because the old gatekeepers look at them and say they're benefiting too much from the value we created -- and we need to take our "fair share." The open systems look at the absolute amount of money they're making, and say "wow, by creating so much more value, and just taking our sliver of the proceeds, we're doing great!"

It's a completely different view of the world.

But, from the outside looking in, if you view the two using the same "metrics" as the old, closed systems, the new "open" ones don't appear to make as much money. But it's not that they can't or don't make a lot of money. They do. It's just that they make less as a percentage of the value they create. And while it's the absolute number that really matters, it seems that our brains are sometimes hardwired to focus on the relative value capture.

Open systems can and do make lots and lots of money. As Fred notes, it requires a lot more thought and planning in terms of figuring out where and how (and often it requires a much closer relationship between products/services and users). But often, looking at the wider market, it feels like those businesses must be leaving more money on the table because they capture a relatively smaller portion of those markets, even if the dollar amounts may be bigger in real terms.

In the simplest of traditional terms: it's better to capture a small slice of a massive pie then a large slice of a small (and shrinking) pie. And being open is how you grow the pie -- not incrementally or linearly, but exponentially.

from the we're-all-connected dept

There is a lot that can be said about being open and honest with your fans. Sure those fans can be pushy and complain a lot, but amongst all that, there is a real opportunity to connect with your fans and help them build up greater love and respect for you and your brand. We have seen many cases in which doing so has helped build a stronger following and bring in a lot more revenue in the process.

Despite this strong evidence for the power of being open and honest, there are still some companies that feel the need to avoid talking to the public. Any time a fan asks a question about anything, most often the responses are either silence or some form of "No Comment." When fans hit that kind of brick wall, they feel as if the company doesn't care about them and are less likely to be engaged in the future. Such responses can also lead to further complaints from the community as well as lost sales.

When the complaints reach a certain threshold, then it reaches the ears of those who have a platform in which to speak and reach a large group of listeners. So when a site like Kotaku gets on its soap box to complain about game publishers who will not engage with the community, then you know a lot of people are listening. The whole article is worth the read but I want to highlight a couple of the suggestions that Kotaku gives at the end.

Answer questions. As many as you can. Questions are not your enemy. We're all here because we all love video games.

Don't be afraid to tease games that are coming in the far future. We love teases. And we won't even mind if those games get cancelled, as long as you don't lie or pretend they're not.

Just talk to us. Explain the logic behind your decisions. Help us understand you. Help us relate. Help us empathize.

They have a couple others that are a bit more specific, but these three cut to the heart. Answer questions, don't be afraid to tease, and just talk. All these things are important to fans and potential customers. These are all part of that process in getting people to not just like what you do produce, but like you as a person or a company. How can they like you if you don't engage with them? It is this engagement that promotes the transparency needed to increase sales, too.

On the other hand, by ignoring your fans you lose the power to control the conversation as well. We highlighted a story last year in which Nintendo made a very weak gesture at engaging with fans. Unfortunately, there was no such engagement and the fans took control of the conversation. Since Nintendo failed to control the conversation by being engaged, the fans began to complain about policy decisions they felt were not ideal. By not engaging, Nintendo lost a lot of good will that day. Had Nintendo actually taken the time to answer and ask questions as Kotaku recommends, they would have had a far better promotion at the time.

As more and more companies learn how to be properly engaged with their respective communities, we should see a lot more successes like those we highlight on a regular basis, such as Louis CK, Amanda Palmer and Double Fine. These people have taken the time to really build a relationship with their fans. A relationship that leads to those fans parting with their money to see more art created. Isn't that what is important?

from the the-gates-are-closing dept

A couple of years ago, we highlighted a story that asked the question, "What if Microsoft Had To Approve Every App On Windows?" At the time, this was a purely hypothetical experiment to highlight some of the weaknesses inherent in a closed platform such as the iPhone. Little did we know at the time, such a scenario might be coming to pass. Microsoft has been talking up its latest operating system, Windows 8, for a while now trying to drum up excitement for its bold new look and direction. Yet, some game developers are taking a step back and looking at the broader direction Windows seems to be going here.

In order for innovation to happen, a bunch of things that aren’t happening on closed platforms need to occur. Valve wouldn’t exist today without the PC, or Epic, or Zynga, or Google. They all wouldn’t have existed without the openness of the platform. There’s a strong tempation to close the platform, because they look at what they can accomplish when they limit the competitors’ access to the platform, and they say ‘That’s really exciting.’

We are looking at the platform and saying, ‘We’ve been a free rider, and we’ve been able to benefit from everything that went into PCs and the Internet, and we have to continue to figure out how there will be open platforms.’

Here Gabe states that many game companies, not just Valve, would not be in existence were it not for the openness of Windows in the past. Now that this openness is threatened, his company is looking at alternative operating systems. This is one of the drivers behind Valve's recent push toward Linux compatibility.

The big problem that is holding back Linux is games. People don’t realize how critical games are in driving consumer purchasing behavior.

We want to make it as easy as possible for the 2,500 games on Steam to run on Linux as well. It’s a hedging strategy. I think Windows 8 is a catastrophe for everyone in the PC space. I think we’ll lose some of the top-tier PC/OEMs, who will exit the market. I think margins will be destroyed for a bunch of people. If that’s true, then it will be good to have alternatives to hedge against that eventuality.

If you think about it, he is right. Take a look at the original marketplace for iPhone applications. When the iPhone App Store was released, it was a closed platform. If you weren't approved by Apple you couldn't release your app or game on it. Even with the presence of web apps and alternative app distribution through jailbreaking, the system remains essentially closed for the majority of iPhone users who are not aware of or don't want to go through the trouble of using these alternative distribution channels. Can you imagine what the overall impact would be for something as widely adopted as Windows? Going back to that hypothetical question posted above, would Microsoft have approved Steam for release knowing it would compete directly with its own Games For Windows Live service?

Since Gabe raised this point, a couple of other developers have echoed his sentiment. In a tweet responding to Gabe's "catastrophe" comment, Blizzard's Rob Pardo stated, "not awesome for Blizzard either." Rob later clarified the statement by tweeting, "Yeah... more trying to say that if everything comes to pass that Gabe said it wouldn't be very good for us either."

I hope we can keep a lot of open and free platforms around. If Microsoft decides to lock down Windows 8, it would be very very bad for Indie games and competition in general.

If we can keep open platforms around, there's going to be a lot of very interesting games in ten years, mixed in with the huge AAA games that we all love.

So not only is having a viable open platform ideal for large game companies such as Valve, but also the budding developers such as what Notch once was. If Windows were to close off in the same way that Apple has closed off the iPhone, many developers of not just games but other software may not be able to survive on the platform. Just as Valve is looking at moving to other platforms, those developers will follow suit. As more developers of games and software shift from Windows to other platforms, their users will potentially shift was well.

It will certainly be interesting to see where Microsoft takes Windows 8 in this regard. Is it willing to take a path so diametrically opposed to its own history and the growing desire of the public for more open platforms? As independent artists and developers continue producing and distributing their work outside gated pathways, can such a change be a viable business option?

from the oh-look-at-that dept

We recently wrote about some concerns by Vint Cerf and others that the FCC was considering a proposal to move some of their network diagnostics efforts -- which are a really good thing -- from the open M-Labs solution to proprietary servers run by the telcos. As we noted, the telcos denied that this was happening -- and Henning Schulzrinne, the CTO of the FCC, showed up in our comments to strongly deny that such a proposal existed.

Yesterday, Vint Cerf distributed an open letter regarding concerns about the Measuring Broadband America measurement infrastructure. We share the objectives of the letter writers that “Open data and an independent, transparent measurement framework must be the cornerstones of any scientifically credible broadband Internet access measurement program.” Unfortunately, the letter claims: “Specifically, that the Federal Communications Commission (FCC) is considering a proposal to replace the Measurement Lab server infrastructure with closed infrastructure, run by the participating Internet service providers (ISPs) whose own speeds are being measured.” This is false.

The FCC is not considering replacing the Measurement Labs infrastructure. As part of a consensus-based discussion in the Measurement Collaborative, a group of public interest, research and ISP representatives, we have discussed how to enhance the existing measurement infrastructure to ensure the validity of the measurement data. Any such enhancements would be implemented solely to provide additional resiliency for the measurement infrastructure, not to replace existing infrastructure. Any data gathered would be subject to the same standards of data access and openness.

It turns out his claim that "this is false" is... well... false. Attached below, we have the proposal that supposedly doesn't exist.

To be fair, this is just a proposal, and the FCC need not accept it. But to claim that there is no proposal to replace M-Labs infrastructure seems to be false. Also, the proposal certainly doesn't wipe out M-Labs servers, but it does clearly allow for the substitution of "ANOther server" in place of the M-Labs offering, as well as increasing the role for the telcos own servers. Given how the telcos have generally acted towards open information and data sharing concerning network data, you can see why supporters of M-Labs would be quite reasonably concerned. In fact, the relationship between everyone involved in these kinds of measurements appears to have gone through some rocky periods over the last few years, such that supporters of M-Lab are reasonably worried that there's a concerted effort to gradually move them out of the process.

Recently, the FCC measurement program has backed sharply away from
their commitment to transparency, apparently at the bidding of the
telcos in the program. The program is now proposing to replace the
M-Lab platform with only ISP-managed servers. This effectively
replaces transparency with a closed platform in which the ISPs --
whose performance this program purports to measure -- are in control
of the measurements. This closed platform would provide the official
US statistics on broadband performance. I view this as scientifically
unacceptable.

For the health of the Internet, and for the future of credible
data-based policy, the research community must push back against this
move.

The FCC keeps insisting that it's committed to openness -- but all too frequently seems to give in to telco demands. So this warning is concerning.

For what it's worth, the telcos are claiming that Cerf is overreacting. In a response to his call for action, Verizon's David Young responded that there's nothing to see here, and that M-Lab and the telco efforts have co-existed and can continue to co-exist going forward.

Vint breathlessly suggests that the FCC is now backing away from this openness "at the bidding of the telcos" and claims the program is proposing to replace the M-Lab platform with only ISP-managed servers. THIS IS FALSE. ISPs have made no such request of the FCC nor has the FCC proposed to eliminate use of M-Lab’s servers.

What has been proposed is that, in addition to continuing to use the data collected via the M-Lab servers, the FCC and SamKnows may also rely on the ISP provided servers that have been in use since the beginning of the project. These ISP-provided servers meet the specifications required by SamKnows as do the M-Labs servers. In fact, it was only because of the presence of these non-M-Lab, ISP-donated servers, that SamKnows was able to identify problems with an M-Lab server that was affecting the results of the tests being conducted. M-Labs did not identify this server problem on their own. It was only fixed when SamKnows brought the issue to their attention. By the way, this problem forced the FCC to abandon a month's worth of test data, extend the formal test period and delay production of their report. Later, another M-Lab server location had transit problems that again affected results. This was the second M-Labs-related server problem in two months and once again, it was SamKnows, using the ISP-provided servers as a reference who identified the problem and brought it to M-Labs attention.

As with many such disputes, the reality may be somewhere in between the two claims here. It seems like Cerf's fear is that by establishing the telcos' servers on equal footing with the M-Labs' open setup, it opens the door to replacing the M-Labs' efforts and then potentially locking up the data. Young is correct that the openness is mainly due to FCC policy at this point, but that policy is dependent on the current leadership of the FCC, which could change. At the very least, it would be nice to see a stated commitment to keeping the information open on an ongoing basis, so that there isn't any need to worry going forward.

from the kick-it-forward dept

If there is one sure way to succeed in the modern age, it is by being open, human and awesome. This is something that we are learning over and over again in the entertainment world, and it is especially true for those running successful Kickstarter campaigns. What started with the success of Double Fine's adventure game campaign has lead to the success of a number of other games. One of those games is inXile's Wasteland 2 project. This project is on track to raise over $1.5 million and as Brian Fargo has learned, this is all because the people behind the project have been open, human and awesome with their fans.

In the opening statement of the latest project update, Brian expresses his gratitude for the outpouring of support the project has received.

I continue to be overwhelmed by the positive feedback and enthusiasm from the support I have gotten from Kickstarter. The groundswell of people cheering us on and the evangelism - people spreading the word - is unlike anything I have experienced. In fact, I would say the last week was the high water mark of my career.

This is one of the best statements of gratitude I have ever read from an artist. Brian recognizes that this success is due completely to those who have shown support by donating and sharing the project with others. Without those two actions, there would be no Wasteland 2. As Brian further notes, all this came from being open and human. He shares the story of two people in particular that show the power of that philosophy.

On the next day I get a short tweet from an individual that confesses he pirated Wasteland as a kid and was donating to help make up for it. I of course forgave not knowing he had donated $10,000 dollars. An incredible gesture... now if we could get every pirate of Wasteland 1 to donate we could really beat the Kickstarter all time record.

This is the true power of openness and humanity. The power to turn a pirate into a paying customer. While not all pirates will turn around and pay $10,000, many will turn around and pay full price for later content made by an artist they love as well.

In the next story, Brian notes just how long lasting this openness and humanity lasts in the hearts and minds of fans.

And just today I got an email along with a donation from a kid who lived down the street from me when he was a teenager. His note was as follows:

"This message is intended for Brian Fargo. Brian, I was your next door neighbor when you used to live in Laguna. I was a pesky 15 or 16 year old kid that would come around and ask you about games. You would sit down and take time to talk to me about games, and the industry, and I just wanted you to know how cool it was that you didn't blow me off. It meant a lot to me. Recently, I found out about your Kickstarter movement for Wasteland 2, and I contributed to it because I believe in you and your ability to resurrect the glory of the franchise. I wish you the best of luck in your endeavors, and thank you again for creating some memorable memories for me during my teenage years. Take care!"

It shows that being nice creates goodwill 20 years later.

If that kind of attitude toward his fans created a lasting effect of 20 years, just imagine how much more goodwill he has built up during that time and what he will now build up. This is not some get rich quick scheme but a way to find lasting success. Success that will last 20 years and beyond.

All of this success has led Brian to further express his humanity and gratitude. Rather than hold to this success and keep it all for himself, he has decided to help fund future Kickstarter projects. In a plan he calls "Kick It Forward", he will donate 5% of the profits made from Wasteland 2 toward other Kickstarter projects and asks that all other successful projects do the same. While the money he pledges won't come until after the completion of Wasteland 2, there are many other Kickstarter projects already making money that can really get this campaign rolling. What a wonderful way for artists to further express their humanity and awesomeness.

from the progressive-solutions dept

We recently covered the indy developer Nimblebit and their friendly-but-snarky response to Zynga copying the mechanics of one of their games. As I argued in the comments to that post, I think people sometimes fail to recognize that copiers do add something of their own—at least, the successful copiers do. Nevertheless, there is a lot of copying in the game industry, and it can lead to a great deal of ire in the community. As Nimblebit demonstrated, there are ways to approach the problem that don't involve immediately going legal.

It's nice to see more developers acknowledging this. At the Game Developers Conference, Rami Ismail and Jan Willem Nijam of Vlambeer said they are getting tired of the same old debates about copying, and want to move the discussion forward. Their suggestion is to worry less about patents and ownership rights, and more about the actual impact of copying—and then address it by being more open, not less:

The pair acknowledged that protecting game designs with patents might actually damage innovation, but argued that this sort of legal protection is separate from the issue of whether game cloning is helpful or harmful to the industry. And make no mistake, clones are hurting the industry, Nijam said, both by diverting skilled developers towards work on soulless copies and demotivating skilled developers who put a lot of effort into truly original games.

What's worse, a preponderance of low-quality clones is training consumers to expect a lack of originality in the industry, Nijam said, a loss of "gaming literacy" that drags the whole industry down. "Players will get all those bad games and stop recognizing actual good games," he said. "If you only eat bad hamburgers, you're not going to recognize a good hamburger."

The natural reaction to this kind of rampant cloning among many developers might be to hold their cards close to the vest, keeping a new idea totally secret until dropping it on an unsuspecting public. But Ismail said the solution to the cloning problem is actually the opposite—educating gamers by developing games out in the open and showing them the real work that goes into an original design. Detailed development blogs, documentaries like Indie Game: The Movie, and websites that dig deep into game design process all help improve gaming literacy among the public and build a foundation for an audience that values original games.

I can only hope other developers at the conference heed his call. The simple fact in any creative industry is that if someone can beat you by copying your work wholesale, then either they are doing something you're not, or you are failing to connect with your audience. Perhaps, as Ismail argues, this can even become a broader cultural problem that needs to be addressed by the industry as a whole—and that's a good challenge to take on. After all, what's more productive? A bunch of developers suing each other without always distinguishing between genuine bad-actors and actual innovative copying? Or a bunch of developers working together to enhance the industry as a whole, better connecting with fans and letting originality emerge organically? The answer, I hope, is easy.

In all three cases, while the "deal" is the same -- $5 paid direct off the website -- they're also are done in a very personable and human way. They weren't announced with press releases, but direct appeals to true fans. As I've been saying, that's a big part of the reason why Louis's offering was such a success. It also helps, of course, that all three of these guys are well-established comics who are known for being at the top of the game, and are widely considered some of the best comics out there.

The one thing that concerns me a little about this is the fact that the deal terms are identical. I can understand why they're doing this. It's basically "don't mess with what worked for Louis." But I worry that the message people are getting is "$5 direct offering off a website is the secret." I don't think that's it. Lots of people have offered up a product for download off their website for a variety of prices. The key to making it work is not just the pricing. It's the way the offering is presented. I think it would be even cooler if some of these comedians experimented a bit more with branching out creatively around this business model. It wouldn't be hard, for example, to build on what various musicians have done, and offer up different tiers of support. Or something else. The real opportunity here is in how it's presented -- in a way that treats fans as fans, rather than assuming they're criminals or that there needs to be a big impersonal gatekeeper in-between the fans and the artist. But, unfortunately, some are going to look at these experiments and say "the lesson" is "$5 off your website is the secret." And when that doesn't work for some content creators, they're not going to understand why.

Overall, however, I'm really excited to see more content creators going direct, cutting out gatekeepers, and recognizing that treating fans well is a good start to any smart business model.

from the being-awesome dept

We've been talking about the value of content creators being awesome (and human), so it's always nice to highlight a few stories of that in practice. Late last week a story made the rounds of how a terminally ill cancer patient, Nachu Bhatnagar, was disappointed that he might not find out how his favorite book series, The War That Came Early, by Harry Turtledove, would turn out. The next book in the series is expected to be released in July, but apparently Bhatnagar isn't expected to make it that far. Bhatnagar's friend, who's known as kivakid on Reddit posted about the situation, wondering if he could get an early copy of the book. Within hours, he had a galley copy being sent to him, and also arranged for a phone call between Bhatnagar and Turtledove, so that the plans for the rest of the series could be revealed.

Beyond being yet another example of Reddit's famed power to do good things, it's another example of a content creator going out of his or her way to help out a fan (in this case, under somewhat unfortunate circumstances). In general, though, it's just a heartwarming story that involves a content creator going out of his way to open up to a fan.

from the needs-some-work,-but... dept

As we noted last month, the community at Reddit responded to the whole SOPA mess by deciding that they should collaborate to write their own piece of legislation that protects internet freedoms. The first draft of the Free Internet Act is now available as an open Google doc, where there are additional edits and comments going on as we speak.

The Free Internet Act: To promote prosperity, creativity, entrepreneurship and innovation by preventing the restriction of liberty and preventing the means of censorship. FIA will allow internet users to browse freely without any means of censorship, users have the right to free speech and to free knowledge; we govern the content of the internet, governments don't. However enforcements/laws must also be put into place to protect copyrighted content.

Huffington Post has a good background article on how the bill was developed. Of course, as we noted when this originally started, there is something a bit naive about how they're going about it... but that's kind of what makes it exciting. It was that kind of naivete that actually enabled SOPA to be stopped. Most "experts" assumed it was a done deal and nothing could stop it. But along came folks such as the Reddit community who simply didn't know that SOPA couldn't be stopped... and they were instrumental in getting it stopped. So I'm excited to see what that same sort of open optimism can do on the proactive side, even if at points it feels naive or cringe-worthy.

Of course, at the same time, it's a little disappointing to see this:

"The idea is to aim high," the thread reads. "This is the same strategy employed by SOPA/ACTA pushers. We are aiming absurdly high, so that we can back down and reach a compromise."

The power of the Reddit community was that it aimed high and achieved. The fact that it stood by its principles rather than "looking for a compromise" was what worked. If you go into a process looking for a compromise, that's what you'll get. If you go into a process looking for the absolutely best solution then you're more likely to get that. People shouldn't be approaching a bill about internet freedom as if it's a fight between multiple parties and compromise is needed. This should be about creating a solution that is really important and really good for everyone. Then no compromise is needed at all.

Either way, this is an interesting process to watch. I'm not sure it will actually go anywhere, but I love the enthusiasm and the proactive initiative...